Does Beijing Tong Ren Tang Chinese Medicine Company Limited’s (HKG:3613) April Stock Price Reflect Its Future Growth?

Beijing Tong Ren Tang Chinese Medicine Company Limited (HKG:3613) is a stock well-positioned for future growth, but many investors are wondering whether its last closing price of HK$15.06 is based on unrealistic expectations. Below I will be talking through a basic metric which will help answer this question.

See our latest analysis for Beijing Tong Ren Tang Chinese Medicine

How is 3613 going to perform in the future?

Analysts are predicting good growth prospects for Beijing Tong Ren Tang Chinese Medicine over the next couple of years. Expectations from 3 analysts are certainly positive with earnings per share estimated to surge from current levels of HK$0.694 to HK$1.06 over the next three years. On average, this leads to a growth rate of 14% each year, which illustrates an optimistic outlook in the near term.

Is 3613 available at a good price after accounting for its growth?

3613 is trading at price-to-earnings (PE) ratio of 21.71x, which suggests that Beijing Tong Ren Tang Chinese Medicine is overvalued based on current earnings compared to the Pharmaceuticals industry average of 14.43x , and overvalued compared to the HK market average ratio of 11.98x .

SEHK:3613 Price Estimation Relative to Market, April 2nd 2019
SEHK:3613 Price Estimation Relative to Market, April 2nd 2019

After looking at 3613’s value based on current earnings, we can see it seems overvalued relative to other companies in the industry. However, seeing as Beijing Tong Ren Tang Chinese Medicine is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 21.71x and expected year-on-year earnings growth of 14% give Beijing Tong Ren Tang Chinese Medicine a higher PEG ratio of 1.58x. Based on this growth, Beijing Tong Ren Tang Chinese Medicine’s stock can be considered a bit overvalued , based on fundamental analysis.

What this means for you:

3613’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are 3613’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has 3613 been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 3613’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.